The NHL has officially cancelled player escrow payments for the remainder of the 2024-25 season - and this could be big news for a team like the Pittsburgh Penguins

On Jan. 18, the NHL notified its players that the league would be cancelling escrow payments for the remainder of the 2024-25 season.

This is big news for both the league and its players - and it could be particularly good news for a team like the Pittsburgh Penguins.

Here is a quick primer on escrow, what went into the league's decision, and why it's a pretty big deal for teams like Pittsburgh:

What is escrow?

One can think of escrow almost like paying taxes. Escrow on its own is, essentially, when a certain percentage of money between two parties is withheld until specified contractual conditions are met.

In NHL terms, the current collective bargaining agreement (CBA) posits that all hockey-related revenue is divided in an even 50-50 split between the league and the players. The league uses previous-year figures to garner an estimation of what revenue will be in the coming year, and therefore, how much escrow will be needed.

To predict the offset of player salaries exceeding the players' 50 percent share by the end of the season, some of their salary is withheld (a fluctuating percentage) and put into escrow in a separate bank account. Then, by the end of the season, if player salaries exceed league revenue, the league takes what is in the escrow account to get the share back up to 50-50.

And - on the opposite end - if league revenue exceeds player salaries, the players get their money back in the form of bonuses to bring back equilibrium.

Why did the league cancel payments?

The only reason the league would cancel payments is because it predicts that revenue is going to far exceed what they previously thought, and therefore, there isn't really any need to continue to collect escrow payments from players that they'd - ultimately - have to give back, anyway.

Up to the point on Jan. 18 when escrow payments were cancelled, escrow was being collected from players at six percent, which has gone down to zero. The league has also agreed to pay the players an extra bonus of one-and-a-half to two percent in addition to the six percent that they've already paid into.

So, in essence, the players are actually earning more money this season than what they would have earned with just their salaries plus the escrow they paid. 

What this means for the league

In simple terms, the cancellation of escrow payments means that league revenue is increasing steadily and that the league is no longer dealing with the shadow of the COVID-19 pandemic's financial implications.

It also means that the salary cap is, likely, going to rise even more next season than originally projected. The current league salary cap is $88 million, and it was already expected to rise to $92-93 million. Given the cancellation of escrow and the projections for league revenue, that number could be several million higher.

If this is the case, it will give teams more financial flexibility - particularly teams that are already cap-strapped. Teams will be able to pay players more, extend more players, and some will be able to make bigger splashes in free agency and in the trade market.

What this could mean for the Penguins

Earlier this week, Penguins GM Kyle Dubas went on record to reinforce the idea that the team is, simultaneously, trying to stay competitive while rebuilding for the future - similar to the "two-window" approach for rebuilding on-the-fly that we detailed last week.

If the Penguins want to get one more legitimate run out of Sidney Crosby and their core - while getting younger and more primed for the long-term at the same time - the salary cap increasing should only give them a better chance to pull that off. 

As it stands now, the Penguins are already projected to have more than $21 million in cap space this summer. If the cap goes up to, say, $97 million - like some have suggested - that would give them more than $30 million to work with. 

Even though many of these guys aren't expected to make it all the way to free agency, the 2025 free agent class right now is really solid. There's no telling where a star like Mikko Rantanen - dealt from the Colorado Avalanche to the Carolina Hurricanes Friday in an astounding blockbuster trade - will end up signing.

And what about Mitch Marner? Even someone like Brock Boeser or Nikolaj Ehlers? At this juncture, there will also be blueliners like Jakob Chychrun (likely to extend with the Washington Capitals) and Vladislav Gavrikov available on the market.

The point is this: Having that much cap space actually gives the Penguins some flexibility to engage in bidding wars for some of the top-tier free agents on the market. And - even if they don't make a splash in free agency - Dubas has said that they want young players who can help the team now and in the future.

This would open the door for the Penguins to expend a few assets and go after players like Anaheim Ducks forward Trevor Zegras, Ottawa Senators forward Shane Pinto, Winnipeg Jets forward Cole Perfetti, or Buffalo Sabres defensemen Bowen Byram and sign them to long-term extensions. Or, it could mean chasing someone like Buffalo forward Dylan Cozens, who they would be able to afford for five more seasons at a $7 million-plus cap hit.

Some of the more competitive teams in the league won't have as much cap flexibility - even with the increase - to make some of the splashes that the Penguins would have the flexibility to make. This is especially relevant when considering the fact that the Penguins don't have any notable players they will need to extend to a hefty long-term price at the moment, whereas teams like Colorado, Carolina, the Florida Panthers, and the Edmonton Oilers do. 

They also shouldn't be in a position where they have to make sacrifices and offload key players on big contracts - such as Erik Karlsson, Rickard Rakell, and Evgeni Malkin - like some other teams might have to, which would bolster the roster in the short-term.

Whatever the case may be, the cap going up bodes very well for a team like the Penguins, who are trying to execute a rebuild on-the-fly and give themselves a chance to compete with some of the league's best teams as soon as next season.